Refund advances get big marketing push in 2017
Walmart, H&R Block, Jackson Hewitt among those looking to lock up more of the market
It’s going to be hard to turn on the TV, drive past a tax preparation storefront or walk into a Walmart early into this tax season and not be deluged with pitches for fast-cash, refund-related loans at 0%.
H&R Block, Jackson Hewitt and others are fighting for market share and trying to lock in customers who might otherwise turn to an online competitor, like TurboTax. The strategy is to heavily market easy money loans for a limited time — typically through February — to struggling tax filers who benefit from the Earned Income Tax Credit but now face added delays for early refund money.
Consumers who might receive refunds of $4,000 or more thanks to the Earned Income Tax Credit now are told not to expect refund money until Feb. 27, a few weeks later than usual.
Experts say early filers still should file in January and February, like usual, as waiting might drag out the process even more.
The 0% pitches come at a time when the working poor and moderate-income families are partic- ularly vulnerable because they turn to early tax refunds to cover winter heating bills and other expenses.
“They expect refunds at a certain time,” said Chi Chi Wu, staff attorney for the National Consumer Law Center. “These are families who can use every penny they can get.”
But the rules changed this tax season, thanks to a push in Congress to combat fraud and crooks who steal IDs to file fake tax returns that tap into generous tax credits, like the EITC, to rip off the federal government.
H&R Block estimates some 15 million tax filers who receive the EITC and often file early could face delays.
“With this client, there are real needs for cash,” said William Cobb, CEO of H&R Block.
On Monday, H&R Block rolled out its Refund Advance product, which is being pitched as a 0% interest loan with no finance charges.
The H&R Block tax-related loan will be made in the amounts of $500, $750, or $1,250 upfront, based on the eligibility of the client.
Refund Advance is offered by H&R Block through a partnership with MetaBank, a federal savings bank based in Sioux Falls, S.D., which can provide up to $1.6 billion of such loans to H&R Block customers.
The loan itself is available if the tax filer is projected to have a tax refund of at least $1,000. The H&R Block loan is only available in H&R Block offices, not online.
“We’re driven to get more clients,” Cobb said. “This is about as consumer-friendly as you can get.”
REFUNDS WILL BE LATER This tax season, many tax filers on the edge could very well take a second look at such products.
Beginning this year, the IRS by law cannot release tax refunds for returns that claim Earned Income Tax Credit or the Additional Child Tax Credit until Feb. 15.
The Protecting Americans from Tax Hikes Act of 2015 — known as the PATH Act — put these extra hurdles into place as a way to combat fraud and ID theft.
Realistically, tax experts say it could be until Feb. 27 or so by the time many early tax filers receive their refund cash.
“For most Americans who file in January and February, they really rely on their refund as one of their biggest checks of the year,” said David Prokupek, CEO of Jackson Hewitt.
Prokupek said some $50 billion of refunds could be delayed as a result of the new law and many consumers will want some product to deal with those kind of numbers. JACKSON HEWITT OFFER Jackson Hewitt’s Express Refund Advance is marketed as a loan with no fees, a 0% annual percentage rate and no credit check.
Jackson Hewitt’s Express Refund Advance offers loans in amounts of $250, $500, $750, $1,000 and $1,300 — again depending on what the customer is approved for by MetaBank. For example, someone who is likely to get a $500 tax refund might qualify for a $250 advance.
Jackson Hewitt kicked off its tax season in late November by offering a way for taxpayers to prequalify for an Express Refund Advance by answering a few questions. Early loans could even be granted with just a pay stub — not W-2s, which are to be out by Jan. 31.
“Handing out money over the Internet without seeing your face or ID is not something we want to do,” Prokupek said.
To get the loan, you will have to pay to file your taxes with Jackson Hewitt. And if you take out a refund advance at H&R Block, you’d have to file your taxes with H&R Block. The advances would be repaid with actual tax refund money when that’s issued.
If you qualify for the Jackson Hewitt advance product, customers can receive the money via direct deposit or loaded onto an American Express Serve Card at no charge. One promotion offers customers who opt for the American Express prepaid card a $50 Walmart gift card.
“Consumers are spending their refund dollars at Walmart,” Prokupek said.
ASK BEFORE YOU SIGN UP So what are the questions consumers need to ask, if they’re tempted by 0% refund advances?
One concern: How much will tax preparation services cost you? Financially strapped tax filers could be tempted to pay up to a few hundred dollars or so for tax preparation services instead of using free services, if they want to gain access to advance loans.
Tax filers who qualify for the Earned Income Tax Credit risk forgoing free tax preparation services via volunteer tax assistance programs, such as those offered by AARP and the Accounting Aid Society.
In addition, the Internal Revenue Service estimates that 70% of the nation’s taxpayers are eligible for IRS Free File where software is available to those with incomes of $64,000 or less. See www.irs.gov.
“A taxpayer should ask about the costs involved with their tax preparation and any related products offered so they can make informed decisions,” said Marshall Hunt, certified public accountant and director of tax policy for the Accounting Aid Society’s tax assistance program in Detroit.
“We’re driven to get more clients. This is about as consumer-friendly as you can get.” William Cobb, CEO of H&R Block